Last week's economic news should have been enough to make bonds and in turn home loan rates make a move, but they didn't. A "flurry" (or if you prefer a wintery mix) of stronger than expected economic reports hit the streets, indicating a resilient economy. Strong economic news usually indicates good things for US businesses - which tends to push money out of Bonds and into the Stock market. We also know that strong economic data can point to higher inflation, which is the nemesis of bonds. So when money flows out of the Bond market, the value of Bonds fall - and since home loan rates are tied to Bonds, this in turn causes home loan rates to rise.
Here were some headlines from last week...the inflation measuring Consumer and Producer Price Indexes (CPI and PPI) both were hotter than expected, showing some lingering inflation in the economy; Housing Starts and Building Permits were both reported as better than anticipated; Initial Jobless Claims were lower than expected, indicating a strong labor market; the Philadelphia Fed Manufacturing Index was higher than estimated; and to top off the week, the Consumer Sentiment Index came in very strong - a three year high! But a closer look at the inflation numbers showed that prices are only increasing at a slightly higher pace than desired by the Fed, which keeps inflation as a concern, but in my opinion not a reason to panic.
Bonds and home loan rates ended up the week only slightly worse than where they started.
This week will be a slow news week (as it relates to economic reports). PLEASE NOTE: anytime the planned economic news calendar is thin, Traders will pay more attention to other types of news and headlines, trends from other markets, and technical factors often step up to play a larger role as well.
Bond prices moved slightly lower, but enough to fall through a "floor of support" last week - and if the trend continues this week, it could cause home loan rates to rise.
It is my opinion , the item of most interest this week will be New and Existing Home Sales data. I truly believe the housing market nationally is stabilizing, so the numbers on average sale prices, inventory and volume of sales will be closely analyzed by the Traders. It is my thesis that the housing market hit bottom in August 2006...and home loan rates remain very low - so if you or someone you know has been considering the purchase of a home, now may be an excellent time to make a move forward.
Kevin Martini - Mortgage Banker - kmartini@HomeBanc.com